1) Locally, Friday, June 2 will see the Buffalo Wild Wings shareholders meeting in Wayzata. Here is where you can learn more about the meeting: http://www.cnbc.com/2017/05/30/buffalo-wild-wings-marcato-proxy-battle-is-a-lose-lose-situation.html. It will be worth attending. The last several months have seen the Marcato Capital hedge fund from San Francisco take a 5% and then nearly 10% equity stake in the chicken wing sports grill firm headed by Sally Smith. Marcato’s head Mitch McGuire has been critical of the company’s strategy and performance as well as Smith’s leadership. McGuire thinks the B-dubs is sputtering sales- and earning-wise with no sound strategy to turn both around. McGuire thinks the answer is a shift from the current 50-50 mix of company- versus franchise-owned stores to something more like a 10-90 mix permitting much more franchising and saved capital expense. Smith attributes the sputtering to macro-economic and industry trends she doesn’t control. We should hold the strategy course while these trends right themselves. In the last few weeks, Marcato and B-dubs have been soliciting proxies from the larger institutional shareholders to elect their own slate of directors to follow their proposed strategies. Shareholder advisory services have split on whether one slate or the other should be elected. On Friday we find out who won the proxy fight. If Marcato wins, then expect Smith and other top managers to leave in the next several weeks. If B-dubs wins, Smith and company may still be gone in several months. The company has lost the confidence of many Wall Street analysts, perhaps because of the sputtering performance, or the proxy fight, or some combination of the two. Expect that claim to come up at Friday’s shareholder meeting. Expect other fireworks from the crowd. It might get as hot as the Desert Heat sauce B-dubs serves.
2) Nationally, I’m also watching the Federal Reserve for signs of a quarter point increase in Federal Funds Rate. Here’s where you can learn more about that likely increase: http://www.startribune.com/despite-inflation-level-fed-rate-hike-is-expected/425421783/. That’s the rate banks charge when lending to each other. It’s currently at a mere 1% but that’s up from 0.75% a month ago. A bump up in the Fed Funds Rate should see knock-on bump ups in other important lending rates like the prime rate that banks charge their best customers –that’s currently at about 4%. Fed board members are talking about a rate increase because they see steady 2% economic growth, decreasing unemployment, currently at about 4.4%, and continued upward wage pressure –wages increased about 3% for manufacturing workers in the past 12 months. These are all great current economic signs, but they also foretell inflationary pressures for many Fed board members. A quarter point increase will signal the Fed’s willingness to decrease such pressures before they get stronger. I think such a move is premature. Inflation is still low at 1.5% in the past 12 months. The reason: low oil prices ($50/barrel) keep the price of nearly everything cheaper: https://www.reuters.com/article/us-global-oil-idUSKBN18Q01B. Lower energy prices mean lower inflationary pressure, thus less need for a rate hike even if the economy is chugging a little faster. Still, markets are betting that the rate hike will come with about an 89% likelihood in June. So get ready for a quarter point hike, and watch the price of oil drop to $45/barrel in June.
3) Internationally, low oil prices and high finance sometimes make for strange bedfellows. Wall Street paragon of capitalist virtue Goldman Sachs just bought sovereign bonds with a face value of $2.8 billion from the state-owned oil enterprise of the quite Socialist government of Venezuela. Here is where you can learn more about the deal: https://www.forbes.com/sites/timworstall/2017/05/30/congratulations-to-venezuela-goldman-sachs-bails-out-the-country-by-buying-bonds/#48030bb82498. That government is facing a local budget crisis due to heavy reliance on oil revenues but low oil prices since mid-2014. So why would Goldman help out this struggling government? Two reasons: the bonds were likely sold at a substantial discount from face value –many say for 32 cents on the dollar, thus Goldman got rights to $2.8 billion in principal payments for less than $900 million; and the guarantee of payment backed by the state-owned oil enterprise’s oil assets in Venezuela and around the world where Venezuela exports that oil. Goldman is likely to do quite well by this deal. And so will the Venezuelan government, which just got an injection of sorely-needed cash to meet budget shortfalls. But if oil stays below $50/barrel like I think it will, that very Socialist government or its less Socialist successor government will be back for more money. Eventually this ends badly…perhaps even for Goldman.
4) On the lighter side of business, I am a sucker for a good pun and some good marketing. Here’s a recent example of both. Read about it here: http://articles.latimes.com/1988-09-07/business/fi-1436_1_lighter-side. Santa Ana, California-based Hydra Baths competes with spa juggernaut Jacuzzi. How does Hydra Baths still capture the customer’s interest? Why with a great jingle, which is this: “Building a better whirl.”
Next week, I’ll be calling in from Oxford, England where I am giving a couple of talks at the Oxford University’s Said Business School. It should be an interesting installment of Business by Carlson…from the UK. The latest polls suggest that UK Prime Minister Theresa May and her pro-Brexit Conservative Party may not win an outright majority in the Friday, June 9 general election. Here’s some of the logic underlying that view: http://www.independent.co.uk/news/uk/politics/tory-majority-poll-election-2017-latest-labour-hung-parliament-seats-theresa-may-conservatives-a7764271.html. If this comes to pass, then the whole Brexit process may be up for review and possible recission…if the Europeans will permit it. This matters for Minnesota businesses like Pentair, which are formally headquartered in the UK, and for Minnesota banks like Wells Fargo with a large operations in the City of London. Stay tuned…and pass the fish and chips.
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